2020 will be a historic year for required minimum distributions (RMDs).
Not only was the RMD starting age requirement pushed back by the SECURE Act, the CARES Act waived RMDs altogether for 2020.
Changes Made by the SECURE Act
Prior to the SECURE Act, anyone with money in a traditional individual retirement account (IRA) or a pretax employer-sponsored retirement plan (such as a 401(k) plan) was required to begin withdrawing a portion of assets from their retirement account no later than April 1 of the year following the year in which they turned 70 ½. Anyone who did not adhere to this had to pay a hefty penalty of 50% of what they should have withdrawn.
The SECURE Act changed the starting age for RMDs to 72, effective for anyone born on or after July 1, 1949. This represents the first age change to RMDs since they went into effect in 1986!
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Changes Made by the CARES Act
As if that weren’t a big enough change to RMD rules, COVID-19 (the coronavirus) came along and shook things up even further. The CARES Act, which was passed in March, waived RMDs totally for this year.
The objective is to allow retirees with retirement savings accounts additional time to make up some investment losses that those accounts may have suffered in the coronavirus-related market downturn.
What if You Already Took Your RMD?
If you took your RMD for 2020 before the CARES Act was passed, you may be able to re-deposit the money via what’s called an indirect rollover. However, this only applies to IRA-to-IRA rollovers, NOT 401(k)-to-IRA rollovers (or vice versa).
But, any RMD taken between February 1, 2020 and May 15, 2020 may be rolled over (or essentially reversed)—as long as the rollover is completed by July 15, 2020. This is thanks to the IRS, which recently issued Notice 2020-23 to provide additional relief to individuals from the impact of the pandemic.
Confused? Not to worry. RMDs and rollovers are both tricky topics, which is why it helps to work with a financial advisor.